Putting United States Online Gambling Back On The Tracks

There has been much soul searching, questioning and angst over the recent launch of online gambling(iGaming) in New Jersey, Delaware and Nevada.  California is on the fence contemplating  legalization and Pennsylvania is also in the mix of states wanting to step in. However, the launch of legal online gambling/iGaming/iGambling in the currently active states has been less then a textbook implementation with many interest group questioning the viability of online gambling in other US states. This is giving pause to new states that want to engage with legalizing US online gambling.  In all due respect to the states that have launched iGaming, it is not uncommon for first adopters in any business sector to experience a delta between expectations and reality. Mistakes will be made for a number reasons. Expertise, knowledge, staffing, funding, etc. all play a role influencing the outcome of new businesses and business models.

 The delta between pre-existing expectations and  the reality of the actual  online gambling business experience in America is now propelling us to sort out all of the factors contributing to a well run iGaming experience and get on with the business of US iGaming.

There are many moving parts  involved in the implementation of any new business. iGaming is an especially challenging e-commerce venture due to the regulatory climate, business acumen,  consumer "expectations" for the product,  marketing, geo-location  and payment processing constrains are a sample of a few unique factors influencing this sector. This "rather special" domain narrows the field of organizations that should and can  be involved in American Internet gambling.

 The following are specific areas to be addressed or reevaluated in the era of the launch and or relaunch of iGaming/Internet Gambling in the USA.  The one advantage we have is that the initial  attempt at launching iGaming in the US has given us insight into what works and what does not work. It also shows us  how US Internet gambling differs from European iGambling requiring America to take its own unique approach to the business sector. 

Who Is In Charge? -  There are many moving parts, functions and organization that need to be coordinated in the implementation of an iGaming roll out with a number of  activities requiring attention  and timing to assure that the overriding  business model is successfully launched. This requires a single individual and or  associated organization  to take responsibility for the successful introduction of an iGaming regime within a state, interstate or on the federal level.  Without this single point of contact there is no place to go to fully understand the status of, schedule for, cost of, organization involved, licenses granted, content approval, legislative interaction, payment processing, marketing, technical platform approval, etc.  

The State Of California has made a bold and thoughtful move and has assigned Richard Shultz to this position. The other states have or are   either currently engaged in iGaming  are contemplating if they should do the same. Of course, no single individual is going to have knowledge in all  iGaming areas and will have to engage with "experts" in each silo to fully master the knowledge base required to successfully engage and launch an iGaming regime. This individual is the go to person for a sign-off on a launch, creation of the business plan, coordination  of the moving parts, and of course, the place to go when things go wrong. This single point of contact appeared to be noticeably  absent in  the New Jersey iGaming launch  resulting in a 'who is on first" reaction to inevitable diversions  from the assumed plan.    

Business Plan - iGaming is a business like any other and should have an overriding business plan  like any new business. iGaming is complicated because of the involvement of government and  associated regulation. However, this is not dissimilar to a banking operation and therefore not alien to the investment community.  The overriding business plan should take into consideration the basics, such as market size, cost of marketing, staffing, regulation, technology, licensing etc. ,and, of course the overall expectations for when revenue will be generated and when the  "stated" plan will go "profitable".

 This business plan will reveal how very complicated and challenging an Internet gambling  business is to launch and manage. In many cases some investors, governments and vendors will simply pass on the investment plan and opt out.  Despite this overriding complexity of developing a full on business plan it is very important for each state to go through this form of rigor with all of the moving parts engaged in the development and scrutiny of the "plan" to assure that the service providers, operators and the governing body fully understand the plan, its  benchmarks and how to compare them against  the actual numbers . Of course, plans very seldom match reality.  The plan also has to acknowledge these what if scenarios. How should the business, investors, regulators and politicians react to delta's in the plan?  

 This process could result in overall optimistic predictions which is the case with most start up operations. However reviewers of the plan and plans should be knowledgeable enough to know when the predictions have gone to far and  the likelihood of plan execution.

Payment Processing - One of the important reasons why Internet Gambling has fallen so far behind its stated financial goals is the fact that major US credit cards can not be used to wager online. This is such a fundamental requirement for  any e-commerce operations it almost seems surreal that a launch would even be attempted without it. This does reinforce the need for someone being "in charge" of the launch and the details of the iGaming business plan before a launch.

Over Zealous Location Constraints - State by state Internet gambling requires only people that are residing and located in  a legal gambling state to gamble on the state sanctioned gambling sites. This requires a knowledge of where the person is playing from and if they are a resident of the state. Unfortunately,  IP filtering is not an exact science and can place people outside the gambling zone when they are actually in it and the government databases used to verify residences inevitably can be inaccurate about the current address and even the correct spelling of a persons full first , middle  and last name. This can  lead to frustrating denials of service for many players. This has impacted New Jersey players. This is one case where European experience can come in handy. The Europeans have faced this same dilemma and have solved it by engaging "reasoning" and filtering verification that does a good job in accepting the valid residents of a jurisdiction.  Also, the requirement for people playing on a laptop to also have a phone to precisely geo-locate them is absurd and only further adds to the frustration associated with IGaming access in America.

The European iGaming Model Is It The Right Model For America? - America has relied heavily on the Internet gambling expertise cultivated in Europe to guide its Internet gambling programs in the US.  Much of the  American iGaming legislation, vendor selection and expertise is directly associated with business, organizations and individuals  involved in European iGaming. In many cases these decisions where made without properly assessing the iGaming business in Europe.  No critical analysis was done to determine if the European approach is the right choice for the USA. For example, Europe recently went from a .com model to a country by country iGaming regime that has largely decimated the iGaming business in Europe forcing consolidation, higher cost of operation and lack of innovation, etc. The stuttering start of US iGaming might be a good point to reassess the European direction and critically scrutinize what is right and what is wrong with that  model as it relates to the US.   We clearly need an "American" model and not a European model if we want a robust and healthy iGaming business in the USA.

Land Based Casino Involvement - US iGaming regulators and license issuers have looked to the US land  based casino to   guide the iGaming effort in the US. In some cases they have received the first licenses with government entities directing true iGaming operators to seek their licenses through the casino operators. The irony of this prejudice is not lost on the casino's themselves and anyone that has been involved with the casino industry.

 In point of fact there is virtually no similarity between land based casino operations and online iGaming.  The US land based casino operators are exceptionally good at terrestrial operations. They are the envy of the world and have exported this excellent model to Macau and Singapore. However,  they have consistently struggled when attempting to launch online gaming(European) ventures. In response to their experience they have decided to wisely withdraw from Europe and have not attempted to build up internal iGaming expertise within their organizations.  We have also witnessed the Steve Wynn and Sheldon Adleston grand standing on a ban on US Internet gambling. They may fully realize that this is not a business they know and understand or perhaps they want every out of the business so they have time to sort it out for themselves?

Social Casino - It is hard to ignore social casino(freemium or virtual currency) in the context of launching and operating an online gaming  business in the US.  In point of fact many of the people playing social casino games in North America are the exact same demographic that normally play slots in US land based casinos.  No, there has been no hard evidence that there is or could be conversion directly from a social casino game to an online gambling slot game! However,  This is not a reason to ignore the social casino audience. Leveraging a clever advertising campaign through social or terrestrial  media directly targeting  the social casino audience might be a very shrewd way to kick start a US Internet gambling businesses.

Affiliate Marketing - Europe has traditionally leveraged affiliate marketing organizations to drive traffic to IGaming properties. This same approach is being taking in the US. However, this is another area where Europe is very different then America. Most affiliate leads come from people that have wagered on sports events through online sports book operators in Europe.  European sports wagering is legal and a very good business. It have been in existent since the .com era and remains viable and profitable. Consequently,  the online sportsbooks  have a robust pool of sports wagers that they can funnel through affiliate networks to online casino operators. The US is completely different, so where are the affiliate marketers getting their leads? Essentially, affiliate marketing my not be the preferred Internet gambling marketing tool that it is in Europe requiring a very different  marketing approach to attract and retain US online gambling customers.

We have passed the irrationally exuberant stage of US Internet Gaming and are now facing  tackling  the practical necessities of operating "real" profitable Internet gambling businesses in the US. Some people and organizations are disappointed with  and shocked by the initial launch. However, they should not be given the way the launch was orchestrated. This is not cause for abandoning Internet gambling in America. Instead it is great opportunity to reinvigorate the effort, reorganize and bring new organizations and people into the effort to launch new properties and reorganize existing ones.

 Kevin Flood is the CEO of Gameinlane, Inc. Kevin, has developed, launched and operated Internet gambling sites in Europe.   Kevin and Gameinlane   develop "social and real money" casino games for third parties. Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions. Kevin can be reached at kflood@gameinlane.com.